According to IRI, they have become a force in their own right and make up about 21% of sales in the $1.7 trillion US grocery industry.
But the origins of store brands remain largely a secret.
Retailers usually don’t come about to the companies that make their brands. And manufacturers, likewise, have little incentive to reveal that they are making products similar to their namesake brand under a different label that is sold cheaper.
Although store brands clearly compete with manufacturers’ national brands, manufacturers often have excess capacity on their production lines. To generate additional profit, some will use that excess capacity to create private labels.
Other brand manufacturers will produce private labels as an incentive for retailers, hopefully rewarding them with better shelf space and placement for their own national labels.
“Most manufacturers aren’t open about it,” said Jan-Benedict EM Steenkamp, a marketing professor at the University of North Carolina who studies private labeling and branding. “Manufacturers don’t want this to be known because it undermines the power of their own brands.”
Coffee and Kenmore at eight
Macy’s sold jugs of Stoneware whiskey under its own name. According to Christopher Durham, president of the Velocity Institute, a trade association of private brands, customers can bring back the molasses for refills.
Montgomery Ward developed its own line of aspirin in wooden containers, while Great Atlantic & Pacific Tea Company (aka A&P) sold branded condiments with the slogan “Take Grandma’s advice, use A&P spice”. . A&P later developed Eight O’clock Coffee, one of the most well-known private labels of the time.
In 1925, Sears created the Allstate brand for car tires. A few years later, Sears launched its first Craftsman wrench, according to Durham. Its Kenmore line, which began as a sewing machine brand in 1913 before branching out into vacuums and other home appliances, became the leading home appliance brand in the United States.
However, these private labels were the exception.
Most customers were loyal to specific brands, not retailers. A store that did not have major labels would likely be crushed, which greatly benefited the manufacturers.
Additionally, many store brands were also considered dull, cheap knockoffs of national brands.
The low point of private labels came during the 1970s, Durham said, when stores were seeking to cut costs and rolled out generics with a basic white background and black letters identifying the product — beer, soap. , colas, beans and other staples.
Retailers create private label brands for a variety of reasons, including to promote profitability and sometimes as a negotiating tool against brands.
Private brands often have profit margins that are 20% to 40% higher than national brands because stores do not have to pay advertising, distribution or other markup costs that are embedded in the prices of major brands.
In the mid-20th century, many retailers began to develop their own labels to regain bargaining power from major suppliers and keep their prices under control. As the US retail industry has consolidated in recent decades, the power dynamic between retailers and suppliers has reversed. Now, stores have the greater advantage of offering their own labels – whether name brands like it or not.
“Forty years ago, it would have been a risky situation to wind up Walmart P&G. Now, Walmart is much bigger than P&G,” said marketing professor Steinkamp.
Today, the store’s private brand operations are more sophisticated than ever and have a much greater focus for chains.
Krishnakumar Davy, President of Client Engagement at IRI, said stores these days are more likely to develop a niche personal brand or product to stand out against competitors and build buyer loyalty.
The US House Judiciary Committee and other lawmakers and regulators around the world have investigated whether Amazon uses sellers’ data to build its brands and illegally endorses its own brands on its website.
Most stores start small with their brand. For example, grocers will often first offer a shelf-stable product such as pasta, flour, sugar or raceme that is easy to make and where brand loyalty is not strong within the category.
“You don’t start with the hardest things,” Steenkamp said. “As stores build more experience and success, they enter new categories.”
How to find out who makes a store brand
So how do you tell who’s behind your favorite store brands?
Product recalls are often the most open way to find out which brand manufacturers are behind specific private labels.
Last year, for example, Dole recalled fresh salads and vegetables, including private brands from Walmart, Kroger, and HEB.
Some large retailers also make their own private labels. For example, Kroger makes about 30% of its personal products by itself.
Perhaps the strangest store brand makers are retailers who create private brands for their competitors: Safeway-owned Lucerne Foods makes private labels for Safeway’s rivals.